Interest swap portfolio: review process in motion

Some six thousand ABN AMRO clients in the SME sector with variable-interest loans took out interest swaps at the same time to hedge against rising interest rates. This construction offers businesses certainty about their future interest charges. An interest swaps is not a simple product to understand, and it is important that the bank explains carefully what its features are. Moreover, not every business will find interest swaps to be a suitable solution.

Review

Following a series of complaints from business over the past year, the AFM has asked banks to carefully review their interest swap portfolios. This process is now in motion at ABN AMRO, and the bank is looking at the various contracts to determine whether the interest swap still suits the business’s situation and to confirm whether the advice given in the past was demonstrably appropriate.

Two specific situations exist in which businesses are exposed to an elevated possibility of problems with interest swaps. The first is where amendment of the contract is necessitated because, for example, the business is in trouble and has a special asset management arrangement with the bank. The second is overhedging, i.e. where the interest swap is no longer proportionate to the interest rate risk it serves to hedge.

Completion scheduled for the end of the year

The review is well under way for clients with a special asset management arrangement and for clients with overhedging in their interest swaps. ABN AMRO will begin contacting these clients in the latter half of October. Communications to other clients will go out during the fourth quarter of the year. The review of the entire portfolio is scheduled to be completed near the end of the year.

Further information

Business owners seeking information about their interest swaps or wishing to register complaints should contact their regular account manager or treasury adviser. This website also offers further details about the features of interest swaps.